For Eco-Entrepreneurs in China, No Simple Way to Grow a Business

Hydrogen cell power is under development at major automobile companies around the world. Shen-Li has put together its version by drawing on foreign parts and know-how and its own research. It hopes to make its mark by finding a way to economically mass-produce the propulsion systems.

The beauty of hydrogen power, Hu said, is that a simple chemical reaction in the fuel cell combines hydrogen and oxygen to make water, producing electric current to power a vehicle, with water the only emission. Moreover, he noted, there are potentially boundless supplies of hydrogen and oxygen, unlike petroleum.

The problem is that producing, storing and distributing the hydrogen costs money and requires an infrastructure of filling stations that does not exist, he acknowledged. In addition, the price of manufacturing a hydrogen-powered vehicle exceeds that of producing a traditional gasoline-powered one.

Until recently, that problem looked like it was on the way to being addressed. The activist Communist Party secretary for Shanghai, Chen Liangyu, and the Shanghai mayor, Han Zhen, visited Shen-Li in July and told Hu they were serious about his technology.

The city government had put up about $200 million for hydrogen cell research and development, some of which kept Shen-Li and its 150 employees going. Shanghai officials announced a plan to put 1,000 hydrogen-powered vehicles on the streets here by 2010 and 10,000 by 2015. After that, mass production would be on the horizon, they suggested, and Shanghai would be at the forefront of the world's search for affordable, environment-friendly transportation.

Under the plan, the state-owned Shanghai Automotive Industry Corp. would produce a good share of the cars, and a company in nearby Suzhou would produce the buses. Some officials suggested General Motors Corp. would get a part of the deal as well. But that would still leave a lot of business for Shen-Li.

"In Shanghai, I am very lucky," he said then. "The politicians want to make an investment in the future."

But party secretary Chen was implicated in a pension fund scandal and removed from power three months later. Shanghai officials and business leaders waited for Chen's replacement, wondering whether he would be as enthusiastic about hydrogen-powered vehicles.

Eminent Chinese scientists with connections to the government then warned Beijing that hydrogen fuel-cell technology may not be advanced enough to warrant large-scale investment. As a result, official enthusiasm cooled.

Lower-level Shanghai officials say they remain interested, but in the meantime they've shrunk their ambitions. A new plan recently announced called for only 100 environmentally friendly vehicles of all kinds on the streets by 2008, 1,000 by approximately 2012 and the capability to mass-produce them -- but no commitment to do so -- by 2015. No money has been allocated.

"It's not a very good sign for us," said Shi Tao, who manages administration and outside relations at Shen-Li. "We are a little frustrated."

A subsidiary of Fosun Pharmaceutical Corp., meanwhile, purchased a 36 percent share of Shen-Li late last summer. Since then, Shi said, the company has focused on electricity generators, which offer hope for more immediate sales in China and abroad. Private venture capital for an iffy project like hydrogen vehicles is hard to come by in China, he explained.